Alleged undisclosed house investment based only on DVO valuation report, with no search evidence, rejected in block assessment appeal

In block assessment proceedings under s.158BC following a s.132 search, the dominant issue was whether an addition for alleged undisclosed investment in a house could be sustained solely on a Departmental Valuation Officer's report when no incriminating material on that investment was found during the search. Applying the statutory scheme (unamended and amended) and CBDT circulars, the HC held that block assessment must be founded on evidence unearthed in the search, and post-search inquiry cannot substitute for the absence of search material. Relying on settled law, the HC rejected the Revenue's reliance on the valuation report and dismissed the appeal for want of any substantial question of law.

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Issues: Whether, for the purpose of determining undisclosed income in a block assessment under section 158BB(1) of the Income-tax Act, 1961, the Assessing Officer can base additions on a departmental valuation report or other expert material obtained after the search when no evidence relating to that investment or expenditure was found during the search.

Analysis: Section 158BB(1) defines undisclosed income of the block period as computation based on evidence found as a result of search or requisition and such other materials or information available with the Assessing Officer. The interpretation of this provision must be read in the context of Chapter XIV-B and the principle that post-search inquiries and materials must arise from or be linked to evidence discovered during the search. A departmental valuer's report obtained subsequent to search does not, by itself, convert into admissible evidence under Chapter XIV-B if there was no evidence discovered during the search relating to the investment or expenditure in question. Reliance on statutory powers to collect information or procure reports (including section 131(1)(d)) does not expand the scope of Chapter XIV-B to permit fresh independent valuation reports as a substitute for evidence found in the search when the search disclosed no material on the specific issue.

Conclusion: Additions in block assessment based solely on a departmental valuation report obtained after search, where the search produced no evidence relating to the alleged investment or expenditure, cannot be sustained under section 158BB(1). The Tribunal's deletion of the addition is upheld and the appeal is dismissed in favour of the assessee.

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